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The UK’s biggest accountancy firms are working to end the industry regulator’s practice of regularly “naming and shaming” companies under investigation, after the financial watchdog abandoned similar plans following refusals from banks.
The Big Four of Deloitte, EY, KPMG and PwC discussed a coordinated effort to file complaints with the Financial Reporting Council on its policy of publicly announcing investigations, alongside mid-sized firms such as BDO, Grant Thornton and RSM, according to four people familiar with the matter.
The campaign – which also included complaints from firms Forvis Mazars and Crowe, as well as professional bodies ICAEW and ACCA – was sparked by a consultation published by the FRC in October and due to close on Friday.
The sector welcomed regulator’s proposals to resolve certain investigations into audits more quickly, allow companies, in some cases, to conduct their own reviews under the supervision of the FRC and implement a higher threshold for opening investigations.
But the consultation made no changes to the watchdog’s current practice of announcing investigations as they begin, nor to the length of investigations, which firms say can put key audit partners under pressure and strand them for long periods.
When announcing an investigation, the FRC generally discloses the audit firm, the company audited and the year under review, which often helps identify the signing audit partner.
“The initial publicity that the FRC is doing…is out of step with what is considered proportionate regulation,” said a person familiar with the lobbying effort. “There are situations where early disclosure is crucial for the protection of markets, but this should not be the default.”
Last year, the Financial Conduct Authority has abandoned plans to name and shame more of the companies it is investigating, after a strong backlash from the City of London.
The FCA had argued that the changes would bring it into compliance with the FRC and the Serious Fraud Office. But the financial watchdog abandoned the plan, fearing it would be conduct business abroad at a time when the government is trying to stimulate economic growth.
Some firms privately argue that the FRC should only identify audit firms if particularly serious misconduct is ultimately found, while others believe the designation should only happen at the end of an investigation, once a violation has been established.
Another option proposed by the industry would be to avoid naming the audited company, in order to prevent publication of the identity of the various partners.
The FRC said in a statement that while it “welcomed this strong commitment”, it could not comment on the consultation responses until they had been submitted.
“We make it clear in the consultation document that we will consider reviewing our publications policy, which will of course draw on the feedback we receive throughout this process,” it says.
It was “very rare” for a person to be named at the start of an investigation, the FRC added, noting that investors “rightly expect… robust enforcement action… in the event of serious or significant breaches”.
Under the regulator’s policies, an investigation is opened if initial inquiries give the FRC “reasonable grounds to suspect” misconduct or if sufficient information “raises a question” about a breach of an audit code.
The ACCA declined to comment on the consultation but said it was “broadly supportive” of the proposals, which “offer proportionate and pragmatic alternatives to traditional enforcement routes”.
BDO, Deloitte, KPMG, RSM, Grant Thornton, Forvis Mazars and the ICAEW declined to comment. EY, PwC and Crowe did not immediately respond to requests for comment.
The FRC has responded to pressure from successive governments to abolish “anti-growth” rules, moving towards a more industry-friendly approach since Richard Moriarty became chief executive in 2023.
Meanwhile, figures associated with the FRC’s tougher stance have left the party, including Elizabeth Barrett, a former head of dispute resolution at law firm Slaughter and May.
The watchdog’s latest consultation follows a separate consultation on its audit oversight strategy in August last year, which also focused on offering more “proportionate” options.
